OneSpaWorld Holdings Limited (NASDAQ:OSW) Q1 2024 Earnings Call Transcript

I think the pre-book, we still are new in terms of the pre-book rollout on NCL, which is an incredibly great opportunity for us where it wasn’t there in the first quarter of 2023. So, we introduced that late 2023. And so, the cadence of that is still starting to bleed through the numbers and will positively impact it probably by the third quarter, whilst we take on all the ships. So, we continue to do as much as we can in terms of optimizing what people are choosing on the pre-book front, which is yield management. And we’ll continue to invest in that as we move forward, not only in our own IT capabilities, but together with the cruise lines and helping them focus on it, because a big focus for them as well is how to get people into all of their pre-booking amenities that they offer.

And certainly, as we’ve demonstrated to them what certain banners are doing versus others, we’re able to get their attention on how to grab more of that pre-book. So, I think we’re optimistic that, that number will continue to grow. And clearly, it is positively impacting top line for us.

Q – Sharon Zackfia: Can you still hear me?

Leonard Fluxman: Yes.

Stephen Lazarus: Yes.

Q – Sharon Zackfia: Sorry, my phone cut out for a second. I wanted to follow up on that because I think you’re making some incremental investments in tech and AI this year. What you’re doing there, I mean on — in 2025 and beyond?

Leonard Fluxman: So, across the company, Sharon, we’re investing in back-office automation with AI capabilities. We’re in the early stages of navigating where we’re going to go first, what’s the lowest hanging fruit that we can tackle and improve in terms of efficiencies. And then on the other side, on the flip side on board, we’re going to look, as we mentioned before on other calls, how we can use AI to improve our marketing offerings, replicating best-in-class across all of the ships, or at least all of the ships in that geography with that demographic. So, I think all of those capabilities are being — the architecture is in play right now. We’re planning on it. We have a kickoff meeting very soon on where we’re at and next steps to follow.

So, together with the enhancements that we’ve made in data collection and data capabilities, which is helping us improve performance on a weekly basis. We’re able to triage it much quicker than before as we’ve mentioned on prior calls, and we’ll continue to invest in that platform as we move forward. And it’s becoming more and more of an everyday tool versus just being able to flash our revenue on a Monday. So, the team is immersed in data, figuring out where the weak points are, where the week manages, if there are some need help, how we get more training to them quicker and how we focus on improving sell-through and attachment.

Q – Sharon Zackfia: Thank you so much.

Leonard Fluxman: Of course.

Operator: And our next question comes from Max Rakhlenko from TD Cowen. Max, please go ahead.

Q – Max Rakhlenko: Great. Thanks a lot. So first, what’s your latest thinking around the number of ships that we should be modeling for you guys over the next few years, given your own wins including one that you discussed this morning with us, as well as some more data points coming across at an industry level. And then when you combine the new ships with your own initiatives that you’re discussing, what’s the latest thinking around the medium-term revenue growth profile for the company over the next few years?

Stephen Lazarus: Max, we continue to have high vessels in total coming into service, new builds that is in 2024. And then in 2025, there are eight of those. One of the numbers goes up likely depending on when Virgin announces the brilliant lady coming into service. So, in terms of the ship — new ship introduction numbers, those continue to look good. They continue to support our thesis that we believe we can grow revenues in the high single-digit rate, and we remain committed and have reiterated that is a medium-term growth rate on the top end.

Q – Max Rakhlenko: Got it. Okay. And then nice job on raising the full year guidance. Curious, how does the team now view the EBITDA margin power of the business and then opportunities to expand past the high-end which is now at 11.9% for the year. So curious, if you could just rank order the line items which have the greatest opportunity for further margin expansion from current levels.

Stephen Lazarus: So, as it relates to margin expansion, I think it’s always comes back to what we talk about, which is where our focus lies. And again, I don’t want to sort of imply anything that is misinterpreted, right? But for us, the focus certainly remains on absolute dollar generation. We’ve talked at length about how generating revenue on board with a highly variable cost model, provided that it’s marginally — that there’s marginal contribution always makes sense even to the extent that you need to do promotional or disputing activity, which in fairness to-date, has not been required a lot. But as we move forward, perhaps if consumer spending, we can likely we would certainly entertain that. So, just as an overarching theme, the focus for us is not necessarily EBITDA margin in and of itself because if it was, then we could simply drive that at the expense of absolute dollars, but we want to bring absolute cash into the business.

And so, we will always do that as long as it’s on a marginal contribution basis. The biggest way that happens on board is through the demand and through the improvement in the marketing programs. But again, it’s difficult, right? We know that 85% of the model on board is variable in nature and so, driving that percentage up is more challenging. There is some benefit that you get as revenue grows and the company continues to scale, that we get the benefit of leveraging some of the fixed costs that we have at a corporate level, which obviously don’t go up in lockstep versus what revenue goes up, but those go up more on a step basis. So, for us, the focus is going to be on driving the total revenue. And while we hope that the margin will continue to improve, the absolute dollars is where our focus will remain.

Max Rakhlenko: Great. That’s super helpful. Best regards and good luck in the second quarter.

Stephen Lazarus: Thanks.

Operator: And our next question comes from Laura Champine from Loop Capital. Laura, please go ahead.

Laura Champine: Thanks for taking my question. I hear that the share repurchases are not incorporated in the outlook for 105 million diluted shares in Q2. But any color you can give because you do have that cash on your balance sheet already on the timing of potential share repurchases?

Stephen Lazarus: We want to be opportunistic, Laura, when this weakness in the stock is when we will be most aggressive in terms of the buybacks. So, no, unfortunately, I don’t think we would signal specific timing on when that would occur as the focus will be to utilize it on an opportunistic basis.